Analysis of the variables: Commodity price and discount rate on long-term open pit mine planning
1 Federal University of Rio Grande do Sul – UFRGS, Federal Centre for Technology Education of Minas Gerais - CEFET-MG, Araxá, Brazil.
2 Federal University of Rio Grande do Sul – UFRGS, Porto Alegre, Brazil.
3 Federal Centre for Technology Education of Minas Gerais - CEFET-MG, Araxá, Brazil.
Research Article
Global Journal of Engineering and Technology Advances, 2021, 06(02), 142-150.
Article DOI: 10.30574/gjeta.2021.6.2.0025
Publication history:
Received on 18 January 2021; revised on 20 February 2021; accepted on 22February 2021
Abstract:
Long-term open pit mine planning is a complex process which deals with numerous uncertainties, whether they are economical (commodity price, operational costs, production schedule, discount rate, inflation, among others); geological (grade distribution, density, hardness, etc); or physical constraints (property limits, environmental issues, legislation, etc). In this context, this paper aims to evaluate the effects of the variation of two important variables: commodity price and discount rate, with regard to the economic criterion, represented by the Net Present Value (NPV) of the mining business. Starting from a baseline value of US$ 80/t, the commodity (phosphate rock was used as a case study) price was varied within a 50% range, above and below the baseline value, obtained from historic values from the last 5 years. The discount rate values adopted in the analyses were 6%, 8%, 10%, 12%, 14%, 16%, 18% and 20%. The results showed increases in the market price yielded higher NPV and life of mine values. On the other hand, it was noted that increases in the discount rate can significantly alter the NPV, materially reducing the value of the mining undertaking. It is also worth noting that, in contrast to more robust approaches such as Real Options Theory (ROT), traditional Discounted Cash Flow (DCF) methods, such as NPV, assume variables, such as commodity price, to be fixed, which could either lead to the undervaluation or overvaluation of a project.
Keywords:
Open pit Mine Planning; Commodity Price; Discount Rate; Net Present Value
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Copyright © 2021 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0